The seller of goods has certain rights against the goods and the buyer. As per the right of lien in the Sale of Goods Act, when a seller delivers the goods to the buyer, the buyer promises to pay the amount decided as per the contract. This is a reciprocal promise that forms the consideration for the contract. When the buyer refuses to pay for the goods, the unpaid seller has certain rights against the goods. This is called the right of lien. Let us understand in detail the rights of unpaid seller against goods and what the right of lien means.
Lien is the right of the seller to hold on to the goods until the payment for those goods has been made by the buyer. The right of lien meaning as per Section 47 (1) of the Sale of Goods Act, 1930 is that an unpaid seller in possession of the goods can retain their possession until payment is made by the buyer.
The Rights to Lien are Applicable in the Following Instances:
The seller has sold the goods without any credit stipulation.
The goods have been sold on credit, the term of which has expired.
The buyer of the goods has become insolvent. In this case, the seller can exercise his right of lien even though goods were offered on credit and the credit duration has not expired.
According to Section 47(2), the unpaid seller can exercise his rights of lien while he is in possession of the goods by acting as an agent or bailee for the buyer. This is called possessory lien and can be exercised by the seller as long as he is in possession of the goods.
If an unpaid seller has made part delivery of the goods then he can exercise his right of lien on the remainder of the goods. The rights of unpaid seller against the buyer are applicable only when there is no agreement to the contrary for waiving of the lien of the seller in case of part-delivery of goods.
An unpaid seller loses his lien over the goods:
If the goods have been delivered to a carrier for their delivery to the buyer, without reserving the right to dispose of the goods.
When the buyer or his agent gets lawful possession of the goods.
If the rights of lien are waived.
Section 49(2) states that lien rights can also be exercised by the unpaid seller even if he has received a decree for the price of the sold goods.
Right of the Seller Against the Buyer in Stoppage of Goods in Transit
The seller of goods can exercise the right of stoppage of the goods in transit as an extension to the right of lien. He can regain possession of the goods and retain them until the payment is made by the buyer.
If the buyer becomes insolvent while the goods are in transit. The seller can ask the carrier to return the goods to him.
The goods are in transit route- The goods are neither with the seller nor with the buyer or his agent. In this case, the goods must be with the carrier who is acting as an intermediary. This carrier must not be an agent of either the seller or the buyer.
The duration of transit for goods starts from the time they are delivered to the carrier by the seller for transmission to the buyer or his agent. The transit of goods ends when:
Delivery of the goods is taken by the buyer or his agent before the goods reach the destination.
The carrier informs the buyer or his agent that the goods have reached the destination and are being held by him.
If the buyer refuses the goods and the seller refuses to take them back it is not considered the end of the transit.
If goods are delivered to a ship chartered by the buyer, it needs to be determined if the master is acting as an agent or carrier of the goods.
If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent, it is considered the end of the transit.
If part-delivery of the goods is done, the delivery of the remaining goods can be stopped by the unpaid seller. It is the end of transit for the remaining goods if there is no agreement to give up the possession of all the goods.
Q1. What is the difference between the Rights of Lien and the Right of Stoppage in Transit?
Ans: There are several key differences between the rights of lien and the right of stoppage in transit.
While the right of lien is the right of the unpaid seller to retain the possession over the goods, the right of stoppage in transit is the right of the unpaid seller to regain possession of the goods.
The right of lien is exercised by the seller when he is already in possession of the goods. The right of stoppage in transit is exercised by the unpaid seller when the carrier is in possession of the goods.
Lien rights of the unpaid seller come into play when the buyer refuses to make the payment. The buyer in this case may or may not be insolvent. The right of stoppage of goods can be exercised by the seller when the buyer becomes insolvent.
Q2. How does the Stoppage of Goods Come into Effect?
Ans: According to Section 52, the stoppage of goods can be done in transit :
When the seller takes actual possession of the goods
If the goods are in the possession of a carrier, and the seller gives notice of stoppage to him. The carrier must return the goods to the seller who bears the re-delivery expenses.